"Three decades of deregulation have demonstrated that airlines have special characteristics incompatible with a completely unregulated environment."

He suggests that airlines be forced to charge fares that add up the legs of a trip, an idea that would penalise connecting hubs like the big ones he championed at Dallas/Fort Worth or Chicago O'Hare.

For instance, if an airline charges $200 to fly from Albuquerque to DFW and $400 to fly from DFW to New York, it would have to charge $600 to fly from Albuquerque to New York through DFW.

"To my mind, a 'sum of the locals' rule would likely reduce the ability and motivation of airlines to preserve connecting complexes now being sustained by operating small, relatively inefficient aircraft, or by pricing ­connecting itineraries far below actual costs or - in far too many cases - doing both," he says.

I agree with him. Its seems unregulated environment & airline business just don't match. I regulation dimishes, things get dangerous (Africa), dirty (China). The airlines just want to grow and make money.. unrestricted by anything.

I dont agree at all, this will kill smaller cities that require a hub transfer....so it costs $400 to fly from MLI to ORD and $300 to fly from ORD to LGA, so $700 to fly from MLI to LGA via ORD....fine if MLI can support nonstop flights to LGA, but what if it cant?

This proposal would kill off airservice to any airport that cannot produce probably close to 1m annual passengers. Bye bye airservice ot any city smaller than say DSM.

Quoting Keesje (Thread starter): agree with him. Its seems unregulated environment & airline business just don't match. I regulation dimishes, things get dangerous (Africa), dirty (China). The airlines just want to grow and make money.. unrestricted by anything.

this is a nonesense statement. Airlines are SAFER today then during regulation. The last crash in the USA of a major jetliner was in Nov 2001. Nearly SEVEN years ago. BTW China's airlines are regulated for the most part. Some are even partially govt owned.

Rather than basking in retirement, CrAAndall ought to be behind bars for what he did to Braniff I and his attempts at price-fixing and anti-trust violations.

Many are nostalgic for re-regulation. But they seldom stop to think --- if the govt were to re-regulate, just whose model do you think they would use as their pattern?

Hint: Politicians are not going to go back to the model where there constituents were seldom (if ever) able to maka plane trips. You would not see a handful of trunk carriers with protected route networks charging exorbitant fares and serving meals on 45 minute flights.

No, the government would use as its model the only consistently profitable airline in existence, thus while airlines might have specifc routes and might be given minimal latitude on what prices to charge....the regulatory agency would force all airlines to modify themselves into basically clones of Southwest.

They've been profitable every year since 1973.

The last time they had a quarterly loss was in 1990, IIRC.

Nobody else even comes close.

So......I don't think a.netters espousing regulation stop to think what would really happen. They like to gripe about Southwest "cheapening" the industry. But if push came to shove, and reregulation occurred.....the governmenet is not going to go back to the 1970s. The government is going to take the only functional airline model that works right now...in the year 2008....and force every airline not like Southwest to be just like Southwest.

I want to also say one more thing: This is NOT how airline pricing worked in the regulation period. It was mileage based but it was nonstop mileage based. If you were flying MLI-ORD-LGA versus MLI-STL-LGA, the fare was the same as it was based on MLI-LGA nonstop.

This is actually one of the worst ideas Ive ever heard. His statement that airline and deregualtion are incompatable totally ignores the good years of the 1980s and mid/late 1990s...if it was so incompatible, why was it so profitable?

I agree with this and I don't know why airlines don't do this to begin with. For example, I looked at DSM-SAN this July. United was charging $973.00 for DSM-DEN and $345.00 for DEN-SAN. But for a DSM-SAN itinerary on the exact same flights priced above, was only $265.00. Are they making money charging $973? Of course they are. Are the making money charging $265, of course they are not. Why not figure out what it costs to operate DSM-DEN and charge something reasonable that would attract 10 times the amount of traffic instead of $973 that very few will pay. Then put the 973.00 fare on DSM-SAN that is much longer or whatever it costs to make money.

I just don't understand charging crazy high prices on short nonstop routes. DSM-ORD is always north of $500 and it is only 280 miles. They could charge $200, fill the plane and make money but instead, only 20% is local and the rest is connecting at a much much lower yield. To me it's a no brainer. Charge the $200 and make money!

Quoting Joeljack (Reply 4):I agree with this and I don't know why airlines don't do this to begin with. For example, I looked at DSM-SAN this July. United was charging $973.00 for DSM-DEN and $345.00 for DEN-SAN

It is supply and demand. Problem with the logic above is that you and Crandall say that pricing should be cost based, but it isnt. Pricing is based on supply and demand.

Quoting Joeljack (Reply 4):I just don't understand charging crazy high prices on short nonstop routes. DSM-ORD is always north of $500 and it is only 280 miles. They could charge $200, fill the plane and make money but instead, only 20% is local and the rest is connecting at a much much lower yield. To me it's a no brainer. Charge the $200 and make money!

For every local DSM-ORD pax paying $200 that is a seat lost to someone flying DSM-PEK for $1000. One reason why short flights have gotten so expensive might be that the opportunity cost of hauling a short haul pax has increased as airlines have become more global in reach.

Quoting EXAAUADL (Reply 5):Quoting Joeljack (Reply 4):
I agree with this and I don't know why airlines don't do this to begin with. For example, I looked at DSM-SAN this July. United was charging $973.00 for DSM-DEN and $345.00 for DEN-SAN

It is supply and demand. Problem with the logic above is that you and Crandall say that pricing should be cost based, but it isnt. Pricing is based on supply and demand.

I agree that airlines should do this as well. It isn't really supply and demand. The fares are often cheaper on a route like ELP-DFW-MCO than they are on DFW-MCO. How is that supply and demand? There is more supply and more demand on DFW-MCO. There is technically zero supply on ELP-MCO since their is no non-stop service. The only supply is a variable slice of the supply on DFW-MCO. The complexity of that results in aberrant fares being in place that do not fit supply and demand. For example, it may be cheaper on ELP-MCO because AA decides that if they lower fares there to fill their capacity (supply) on DFW-MCO it is less likely to be matched by competitors than if they lowered fares on DFW-MCO where it would draw more attention by more competitors. So in many/many cases it is more about game theory than supply and demand which is why the whole system is broken.

Quoting TxAgKuwait (Reply 2):So......I don't think a.netters espousing regulation stop to think what would really happen. They like to gripe about Southwest "cheapening" the industry. But if push came to shove, and reregulation occurred.....the governmenet is not going to go back to the 1970s. The government is going to take the only functional airline model that works right now...in the year 2008....and force every airline not like Southwest to be just like Southwest.

I guess you have a much higher regard for Congress than I do.

IMHO Congress would put into place whatever system fobbed onto them by the best funded lobbiests.

That's why the dinosaur CrAAndAAl is opening his pie hole, and using an obscure and fairly irrelevent issue (relative to all the other ones that come to mind) to start the debate. Once the issue is in play, all kind of tomfoolery can and will happen, IMHO.

His pricing plan is a competition killer. It basically says that non-stop airlines should be mandated, by law, to offer a lower fare that a competitor can't match without a non-stop flight. This means that on routes where only one carrier flies non-stop and the others fly through a hub, the consumer will not get price competition. The non-stop airline will by law be able to undercut the one-stopper.

This might not matter on Bay Are to NYC or Los Angeles basin to NYC, but it screws the small market citizens even more. No one will be able to compete on Grand Rapids - Houston, for example, and CO would develop a monopoly. All around the country, airlines would develop monopolies on routes between small markets and their hubs even more than they do today, because the other airlines won't be allowed to compete on price.

Quoting TxAgKuwait (Reply 2):But if push came to shove, and reregulation occurred.....the governmenet is not going to go back to the 1970s.

So the government is going to fix prices at 1/2 the market rate for all carriers?

Quoting STLGph (Reply 9):that's a bunch of b.s. getting raped on prices such as this out of places such as Des Moines, Cedar Rapids, etc. is nothing more than ... "getting raped on prices such as this."

are the planes full out of DSM and CID, or are the LFs well below the industry average?

Quoting TxAgKuwait (Reply 2):Rather than basking in retirement, CrAAndall ought to be behind bars for what he did to Braniff I and his attempts at price-fixing and anti-trust violations.

now there is BS....Braniff did itself in.

Quoting Enilria (Reply 6):The fares are often cheaper on a route like ELP-DFW-MCO than they are on DFW-MCO. How is that supply and demand?

That is cuz of southwest.....if you dont think fares are a function of supply and demand why do airlines have sales in the fall and are cutting capacity with the hope of raising fares. Youre from Canada. AC use to have seat sales every fall?? why???

Quoting Revelation (Reply 8):IMHO Congress would put into place whatever system fobbed onto them by the best funded lobbiests.

That's one reason there was pressure for deregulation in the first place.

Quote:Most of the major airlines, whose profits were virtually guaranteed, favored the system. But passengers forced to pay escalating fares did not, nor communities which subsidized air service at ever-dearer rates. Congress became concerned that air transport in the long run might follow the nation's railroads into trouble; in 1970 the Penn Central railroad had collapsed in what was then the largest bankruptcy in history, resulting in a huge taxpayer bailout in 1976.

Leading economists had argued for several decades that this sort of regulation led to inefficiency and higher costs. In 1970-71 the Council of Economic Advisors in the Richard Nixon Administration, along with the Antitrust Division of the Department of Justice and other agencies, proposed legislation which would diminish price collusion and entry barriers in rail and truck transportation. While this initiative was in process, in the follow-on Gerald Ford Administration, the United States Senate Judiciary Committee, which had jurisdiction over the antitrust laws, a part of competition law, began 1975 hearings on airline deregulation. Senator Ted Kennedy took the lead in these hearings. This committee was deemed a more friendly forum than the more appropriate place, the Aviation Subcommittee of the Commerce Committee. The Gerald Ford Administration supported this initiative.

In 1977, President Jimmy Carter appointed Alfred E. Kahn, a professor of economics at Cornell University, to be chair of the CAB. A concerted push for the legislation had developed, drawing on leading economists, leading 'think tanks' in Washington, a civil society coalition advocating the reform (patterned on a coalition earlier developed for the truck and rail reform efforts), the head of the regulatory agency, Senate leadership, the Carter Administration, and even some in the airline industry. This coalition swiftly gained legislative results, in 1978.

Quoting EXAAUADL (Reply 3):This is actually one of the worst ideas Ive ever heard. His statement that airline and deregualtion are incompatable totally ignores the good years of the 1980s and mid/late 1990s...if it was so incompatible, why was it so profitable?

In the 1980s, the airlines were growing into an underserved market. By the late 1990s they were pushing debt funded domestic expansion too far, only getting away with it because they could overcharge business flyers whose companies hadn't yet decided that they were getting ripped off by the airlines. At the same time they weren't willing to expand international flying to the same extent because the overvalued dollar made them uncompetitive and instead relied on their international codesharing partners.

Quoting TxAgKuwait (Reply 2):So......I don't think a.netters espousing regulation stop to think what would really happen. They like to gripe about Southwest "cheapening" the industry. But if push came to shove, and reregulation occurred.....the governmenet is not going to go back to the 1970s. The government is going to take the only functional airline model that works right now...in the year 2008....and force every airline not like Southwest to be just like Southwest.

Southwests business model works because they hedged their fuel. When their hedges run out, they will be as unprofitable as anyone else.

Quoting LAXdude1023 (Reply 16):Southwests business model works because they hedged their fuel. When their hedges run out, they will be as unprofitable as anyone else.

Financial analysis needed to determine why they made profits prior to fuel spike. Other airlines bought newer more fuel efficient to ensure a consistent and fresh product, WN decided to purchase hedges to ensure price stability.

Looking at Crandell's proposal, how does it affect flights from say MIA-JFK, how many hubs are there between and will some smart alec airline decide that price of that non-stop should take into consideration the number of major airport in between?

Essentially the airlines are loosing money, have no clue how to fix it and want other's to fix it for them, the govt. regulation now required is to reduce ATC capacity to accomodate the reduction that the carriers are now parking, and enforce the lower utilization at all airports. This will immediately allow airlines to make higher yields from lower number of flights, reduce congestion at all major airports, reduce number of a/c in the air thus allowing reduction in ATC personnel, lower airline and airport payrolls as less staff will be required for the lower number of a/c movements, all in all a win win situation, what could be better?

Quoting STLGph (Reply 13):airport still loses too much business to Kansas City and Omaha.

That's because of $973 dollars fares on very short routes...if passengers want to drive to MCI or OMA for a 200 dollar fare to SAN, let them...it's not going to make the airline any money anyway.

Quoting EXAAUADL (Reply 11):are the planes full out of DSM and CID, or are the LFs well below the industry average?

Planes out of DSM are about average, maybe a little below average (lots of 60% LF's) but with a much higher average fare than average. Drop that nonstop fare to ORD and DEN to a reasonable price and now you have packed planes at the expense of the $200 fare to the coast that makes no money.

Quoting EXAAUADL (Reply 5):It is supply and demand. Problem with the logic above is that you and Crandall say that pricing should be cost based, but it isnt. Pricing is based on supply and demand.

I don't entirely agree. It is supply and demand but ultimately revenue has to cover the costs otherwise there's no point in even being in business.

Quoting LAXdude1023 (Reply 16):Southwests business model works because they hedged their fuel. When their hedges run out, they will be as unprofitable as anyone else.

Everybody else can also hedge their fuel too. Southwest's model works because their management knows what they're doing. and no, their hedges won't run out because they keep renewing them as they recently did.

Quoting Airbazar (Reply 22):their hedges won't run out because they keep renewing them as they recently did.

Agreed, hedges don't "run out" unless the airline decides to no longer hedge their fuel. Most big carriers hedge their fuel costs. But hedging is risky, if the price of fuel suddenly drops, it can leave you with more expensive fuel than the market price. Plus, it takes money up front.

Quoting Airbazar (Reply 22):
I don't entirely agree. It is supply and demand but ultimately revenue has to cover the costs otherwise there's no point in even being in business.

Supply and demand sets price, not cost. If cost exceeds price long term, indeed some players will exit, but then supply will go down and price will go up. Everyone's gambling with the investor's money that some one else will exit first, but it seems what is happening is there are a lot of investors willing to play the game so this rule is not in force in the short term.

Inspiration, move me brightly!

25 Pope
: Only because regulation (i.e. Chapter 11) doesn't allow market forces to work. Think about what the environment for Southwest would look like if any

26 Enilria
: The airlines still have airplanes to fill and aren't going to purposely shrink themselves unless it is required (by oil) to make money. Actually that

27 Enilria
: Frankly, though, O&D fares have to be higher from DSM because it only has non-stops to a few cities. On a non-stop to non-stop basis it should be far

28 CrAAzy
: Well then, I better darn well get a bag of peanuts and a drink on my MKE-ORD segements for an extra $200 Reality is that it would cost way too much mo

29 Iloveboeing
: I think these airlines would make money if they just switched to rational, logical, and transparent pricing across the board. It should always be mor

30 BOAC911
: There is supply, and plenty of it. Technically, ELP-MCO is viewed as one market, irregardless as to whether you can fly it nonstop, or through some h

31 Enilria
: I think we agree in principle, but are using different linguistics. Whether you think there is infinite or zero capacity on ELP-MCO the fact that the

32 EXAAUADL
: you said yourself that whether or not a bucket is open or closed, depends on demand: last yeas demand, forecasted demand and you didnt say it but how

33 EXAAUADL
: that's how it use to be in regulation. Longer flights were proportionally more expensive than short flights...though I wish everyone would stop sayin

34 BOAC911
: Yes, I think you hit it right on. Crandell (or rather American Airlines) was one of the pioneers of yield management. It is astonishing to see how op

35 Airbazar
: That's somewhat true but not nearly as proportionate as some people suggest. A 757/767 flying a 4-5 route has far lower cost per seat mile than an RJ

36 Lufthansa
: Guys...a few comments here. Firstly, this is far better then basic price fixing because it allows the market to decide what each sector is charged, an

37 Commavia
: While I find it unfortunate that Crandall is expressing this opinion about re-regulation, I think it is interesting to note some of the other points h

38 Avek00
: Contrary to conventional wisdom, Southwest tends to command a HIGHER average fare paid per passenger than its legacy competitors, and generally maint

39 767Lover
: Get rid of the NIMBYs and that might happen. I agree that certain aspects of bankruptcy should be changed, but in my experience many suppliers either

40 Enilria
: There are several problems. One is that there are way too many flights and combinations of flights for even a powerful set of computers to track in r

41 Commavia
: That is precisely the point he has repeatedly made, though: the unions have the upper hand because they can strike and put the company out of busines

42 ER757
: As fuel prices continue to rise and airlines continue to park planes, this may happen regardless There was a lot of non-stop flying un-related to hub

43 777law
: I love the nostalgia some on this site have for re-regulation of the airlines. I have one word for those of you who think re-regulation is the answer

44 Ssides
: It's not often that I disagree with two people I respect a great deal, but that's actually the case here. I can't see how mandating the "point to poin

45 TxAgKuwait
: Sides, you don't have to disagree with me. I am not saying Crandall was a bad manager. Quite the contrary...he was in many respects a brilliant manag

46 Ssides
: I understand the desire for that sort of a system -- it strongly resembles the train fare structure in most of Europe (with the UK being the obvious

47 Keesje
: Thnx for broadening the thread with additional interesting info & opinions! “I've got one problem. It's about this independent speaking. If you com

48 Burkhard
: Prices should be fixed by supply and demand. A basic model based on distance can serve as a start, but this start is 50 years ago. Why charge more for

49 Wouwout
: wow Keesje how can you say that regulation is better? You must remember the ridiculous prices that were charged in Europe? We need good safety regulat

50 Ssides
: The legal environment, at least in the US, would have to be changed wholesale in order for that to work. First, with the exception of a handful of sl

51 Wouwout
: I am amazed that people still think this way. The only thing worse than a duopoly is a monopoly. Who are you to decide that there are enough flights?

52 Keesje
: My impression is some regulation is neccessary. For optimizing capasity & effieciency & the environment. Competitions proved not to be able to sort i

53 Lufthansa
: You're right...the problem in the US is, other factors have stuffed up market forces...the single biggest being Chap 11. I think crandall's idea is b

54 Burkhard
: I'm aware of this. But if politics can do anything, it is exactly this, to create a healthy legal environment, in which the interests of the public a

55 Avek00
: We do not need Washington bureaucrats to do the job of the marketplace, which is progressively weeding out the weaker players.

56 Tockeyhockey
: how about this for an idea: charge an amount for each seat that covers the cost of the flight. i remember reading a very serious article about the air

57 Airbazar
: Actually, they manage their own health care system pretty good. Really? In any other industry but the airline industry, the likes of NW, UA, US would

58 Tango-Bravo
: Whether one agrees, or whether one totally disagrees... regardless of whatever one may think of Crandall... this observation is 110% correct. The cho

59 Enilria
: That's why I think it should be easier to have scabs. I agree with him that the labor-airline relationship is also fundamentally broken. I don't have

60 Panova98
: Certainly an interesting discussion for us travelers with a little more free time on our hands than we'd like to admit. Whenever "revenue" or "yield"

61 DfwRevolution
: Well that's basically the point I am making. Crandall never wanted to de-regulate in the first place. The 80s and 90s didn't change AA's penchant for

62 Enilria
: There was a comment from somebody else that said, IMHO erroneously, that a change to sum of locals pricing would lead to small communities losing air

63 Flighty
: That's all silly. WN is behaving in a silly way basically contrary to its shareholders. Sure, it wrecked a lot of legacies with its hedge money. But

64 Flighty
: That is very insightful. I agree. Also, it would hurt a lot of flights ORD-LAX because there would be less feed from small cities. So there would be

65 0NEWAIR0
: Crandall is nuts. All he's trying to do is make it more expensive and inconvenient to travel so his new baby (POGO) can get off the ground and make a

66 Enilria
: I don't know that I'd call them fraudulent, but it does tie to my comment about cross-subsidization and how bad it is for the airline business. In es

67 Panova98
: To Enilria, and your comments are always pretty good. My belief is that connecting passenger prices from the small and mid-size airports would be of n

68 Enilria
: I appreciate the compliment. You wouldn't have to set an add-on from Dulles to Altoona by govt fiat, the market could decide the fare from Dulles to

69 Flighty
: After thinking more, I am not sure I know what Crandall's idea would produce in outcomes. It is really complicated. For one thing, we might we regiona

70 TxAgKuwait
: Flighty writes in, and I quote {quote]What were airlines supposed to do... make huge gambles on oil price futures just like WN? It was not only innova

71 Flighty
: Oh, yeah. Suddenly these would-be business school teachers are trumpeting WN's hedges as an example of tomorrow's best MBA case study. WN was in the

72 Ssides
: You have got to be kidding me. You think WN's shareholders aren't happier today than those at UA, DL, US or NW? All of those companies' shareholders

73 777law
: I think you misunderstand my point -- it's not that reregulation of the airlines would look like Amtrak. The point of the Amtrak comparison is that g